565Discussion

Marketing Group D chose to set a goal to achieve a cumulative net income of $960 millon and a stock price of $122. We knew this would be a major task since Allstar Brands originally only had earned net income of $67.1 millon and a stock price of $38.4 millon. In order to achieve this goal we knew our sales would need to increase and costs decrease through variations of both. Our goal was to increase market share by approximately 2.5% per period and at the same time staying in line with the current inflation rate by lowering costs and increasing the volume of sales. We knew we would have to watch the market size so that our spending did not exceed the current market. We believed Allstar Brands could reduce their advertising costs approximately .05% by encouraging word of mouth promotion and distribution of trial-size products to the local stores. We recognized there might also be the need to reduce some other operating costs in order to achieve our long-term strategies. Our marketing group hoped to increase Allstar Brands gross margin approximately 4.5% per year by increasing the volume of sales by approximately 7.5% and reducing the unit price by about 3.2% over the next five years. We recognized this would be a challenge and were confident there would be ups and downs, but we set a goal and we were determined to try various options in order to achieve it.

Each year of our decisions were at different levels – Brand Assistant, Assistant Brand Manager, and Brand Manager. Based on the level, different options were available. As the level increased, the marketers were provided more advertising and promotional options. There also were several periods the marketers had the option to reformulate a product or to introduce a new product or line extension. When a reformulation occurred or a new product was introduced the budget was increased to accommodate for the additional expenditures required to promote this product. The overall objective was to continue to increase net income as well as maintain or possibly increase the stock price for Allstar Brands. Marketing Group D was successful.

DECISION 1

For our first year Marketing Group D was provided a total budget of $39.3 millon of which we spent a total of $38.4 millon leaving an unexpended balance of $.9 millon. Based on the market update that prices were rising slower than inflation and the fact that our brand was priced higher than our competitors, we decided not to raise the price. Based on the fact that advertising and promotion were up, we raised both categories to be more in line with competitors. This brought our advertising budget to $22.5 million and our promotional allowance to 18%. More specifically, we set trade promotion to $1.8 million and consumer promotion to $6.1 million.

Also, the market update reflected mass merchandisers having the strongest growth in the period at 9% and retail sales growing; Marketing Group D adjusted the sales force accordingly. Our direct sales force was 105 and the indirect was 50. This made our budget percentages 19.6% for sales force, 58.6% for advertising and 20.4% for promotion. This period we were able to take a look at all the reports without using the budget and it allowed us to see which of our competitors were in direct competition of us and what their spending areas were. Our group identified our closest competitors and evaluated where our numbers needed to be in relation to them. This was not only for the decision to keep our price at $5.29, but also for the advertising, promotion, and sales force numbers.

With all the adjusting, Marketing Group D ended this decision with $0.9 million remaining in the budget and we believe it helped with our overall income in the outcome of this decision. As we wanted, our stock price increased $13.31 and we were able to increase our net income 33.4%. Our revenue growth from this decision was 22.7% up to $436 million. The only thing we really might have done differently is use the last of the budget for a little more advertising to try to get more sales.

DECISION 2

For our second year Marketing Group D was provided a total budget of $48.4 millon of which we spent a total of $38.6 millon leaving an unexpended balance of $9.8m. The market saw the need to reformulate our product now. Our short-term strategy was to reformulate our existing Allround product in order to remove the alcohol that had been reviewed as a negative attribute. We choose to move forward with this strategy during our second year of business since our market share seemed to hold its own with the Allround product we previously were selling. Our marketing group chose not to increase our price since our price seemed to be higher than our competitors as well as the market reported prices to be up 3.1% with inflation up 2.7%. We also did not make any changes to our volume discounts.

The sales force budget for Allstar Brands our group choose to increase 2.7% - equal to inflation, but a little under the price increase. Marketing Group D increased our sales force by 20 more employees. While this increase greatly impacted our direct sales force it only increased the indirect staff about half of the increase of the direct. With retail sales up 19.5% we knew we must increase the staffing accordingly.

According to the market, advertising expenditures increased $20.2 millon. Since our prior year advertising budget was at $22.5 million, Marketing Group D felt the need to reduce ours slightly – we reduced it $1 million. This reduction helped to reduce our advertising ratio of the total budget from the original 60% down to 55.7%. This reduction in advertising falls in line with one of our performance objectives of reducing advertising approximately .5%. We just reduced it 2.9% since last year. This is good since we felt 60% seemed rather high for advertising.

The market reflected a 36.7% increase in promotional spending. Upon Marketing Group D analysis, we felt our promotional spending increased approximately $18.1 million more from over the last year where the market appears to have only increased $15.9 million. Marketing Group D chose to decrease our promotional allowance budget by 1.5% reducing the budget down to $72.3 million versus $78.5 million from the prior year as well as reducing the allowance down to 16.5% from 17%. While we decreased the promotional allowance slightly we choose to increase the trade and consumer budget approximately 1.6%. These minor changes in promotional helped us to increase our sales force and still stay within budget.

Our second year overall was not as profitable as our first year, but we still increased our net income by $13.9 million over the last year. Allstar Brands continues to maintain a 23.4% market share, only a .50% decrease from the prior year. While Marketing Group D had hoped to increase our net income and stock price more, we were still happy with our results.

DECISION 3

For our third year Marketing Group D was provided a total budget of $55 millon of which we spent a total of $41.5 million leaving an unexpended balance of $13.5 millon. The market update indicated that the prices were rising at an average much lower than the rate of inflation so fearing that we were too expensive we lowered our MSRP by a few cents. The update also indicated that advertising was up so the budget was shifted to $22 million. Since total promotional spending only went up $3.6 million, we decided to keep it at 16.5% with trade set to $2.5 million and customer promotion being set at $1.7 for point of purchase, $1.5 for travel size and $5.1 for coupon budget.

The market update also mentioned that the mass merchandiser sales were up by 13% and retail was up 2.5%. This prompted us to raise the sales force which would result in direct at 118 and indirect at 56. Marketing Group D finished this decision with $13.5 million left in budget and we wanted to keep the budget to increase our net income. However this was one of our largest amounts left and we believe we should have taken the decision to increase our sales force and advertising to drive sales. All things considered, Marketing Group D saw an increase in unit sales and our stock price. Our revenue still increased by 7% and our net income jumped by 7.4%.

DECISION 4

For our fourth year Marketing Group D was provided a total budget of $71.1 million of which we spent a total of $64 millon leaving an unexpended balance of $7.1 millon. The market announced the possibility of introducing a line extension this year. Marketing Group D chose to introduce Allround+; this is a 12 hour multi capsule for colds. We felt it could be beneficial for Allstar Brands to promote a capsule versus just the current liquid, Allround. Another benefit of the Allround+ capsule would be it would last 12 hours versus 4 hours as the liquid does. We chose to price both Allround and Allround+ at the same MSRP of $5.24. Since we already reduced Allround last year by $.05, we chose to maintain the same price for now and introduce Allround+ at the same price. The unit cost has only increased $.05 for Allround so we did not feel it would make a considerable net difference. Allround+ unit cost is approximately $.20 less the Allround. This reduced cost will help offset our advertising costs our marketing group will incur to promote our new product. Once again, Marketing Group D felt comfortable with our current volume discounts; the group chose to only increase by 5% from last year.

Marketing Group D felt the need to increase the sales force by 45 more employees to assist in the promotion of our new product Allround+. This additional staffing only cost an additional $3 million to fund; we felt this was reasonable. When we increased our staffing in year two it assisted in increasing our sales; we believed almost doubling the sales force increase should considerably aid in increasing our sales with our new product.

With the introduction of a new product line, Allstar Brands received an additional budget to assist in the promotion of the line extension. However, these additional funds must be allocated between both products. The additional $8 million advertising budget we allocated to the Allround+ product with $11 millon for Allround and $19 millon for Allround+. While this advertising budget did increase from last year, the percentage of the total budget decreased again. Our goal was to reduce the advertising budget slightly to offset with an increase in promotional spending. We chose to continue using SR advertising agency for Allround, but use the little higher priced ad agency BMW for the new product, Allround+. The group felt the need to use the little better agency during the first year of introduction of a new product line extension. Marketing Group D looked at redistributing the target messages; we decreased two of them around 1.5%, but increased the reminder portion by 3%. We felt the need to let the consumers know the benefits of the no-alcohol cold medicine as well as the advantages of a 12-hour capsule. It is important when introducing a new line extension to send various messages to the consumer.

The market saw a $10.6 millon increase in promotional spending over the last year. Marketing Group D felt we needed to reduce our budget slightly over the last year to assist in increasing our net income for the year. If we looked at reducing slightly, this would help offset the additional advertising necessary for the new product line extension, Allround+. Our trade and consumer promotion we focused more on the new product since Allround was already established.

Our fourth year of business was considerably profitable even with the introduction of a new product line extension. Usually the introduction of a new product or service, companies tend to see a reduction the first year or so. Our net income increased $12.4 million since last year as well as our market share overall increased to 25%; this is up from our first year of 23.8%. We believe our conservative advertising and promotional budgeting of our new product Allround+ aided in this positive cash flow for the year.

DECISION 5

For our fifth year Marketing Group D was provided a total budget of $72.1 million of which we spent a total of $72 million leaving an unexpended balance of $.1 million. One of our main concerns this decision was leveling out the advertising budget. In the previous decision, we allocated more for the newer product to have a larger launch. Since advertising was only up $5 million for this period, we decided to just try to level out the spending we were already doing instead of trying to increase the advertising budget. We also continued to use the same advertising agencies for each product. Promotional spending was up by $8.8 million but in an effort to conserve some of the budget while getting used to managing two products, we decided to drop both products by 1%. Trade promotion was the same for the Allround and decreased by $.05 for Allround+. The consumer promotion was increased in all aspects, except coupon budget and amount for Allround+. Again, these decisions were made for budgeting purposes.

The sales force was adjusted due to growth in both grocery store and retail sales; this growth encouraged us to raise the direct sales force to 160 and indirect sales force to 75. Pricing saw only a .5% less increase than inflation so we decided to increase the pricing on both products by a small amount. We decided to have our volume discount for this period range for 28% to 35% for Allround and 29% to 36% for Allround+. This work allowed us to see a 9.1% growth in revenue and our stock price reached $79.68. This decision did not leave much unexpended budget, but it did have a growth of 6.8% for net income.

DECISION 6

For our sixth year Marketing Group D was provided a total budget of $92.6 million of which we spent a total of $92.3 million leaving an unexpended balance of $.3 million. The market update informed us that one of our competitors was introducing a new product so our marketing group chose to introduce a new product as well, Allright. This product was a 4 hour allergy capsule that was to be non-drowsy. Allstar would be the first company to introduce this product so we knew it could be risky, but it was in line with our initial strategy so we chose to move forward. Also we were confident with introducing a new product this year we would still have a few more years to absorb the initial advertising push and should see an increase in our overall sales by year two and three. This year we purchased the pricing report to look at our competitor’s pricing. We also analyzed the unit cost of our products and felt the need to increase the price of our two original products, Allround and Allround+. Since the market reflected retails sales up approximately 8.4% we chose to increase Allround price 6% and Allround+ 4%. We chose to introduce Allright at $4.95 so that it was just a little under our competitors Believe and Defogg that both were priced at $4.99. Our volume discounts for Allround we increased slightly to keep our customer base interested and we reduced Allround+ discounts slightly to absorb the increase for Allround. Allright discount we placed in between the two to aid in the push of sales.

Advertising for this year we had to increase $4 million to assist with the introduction of Allright. Our marketing group was hearing that we needed to increase our promotion more so we reduced the advertising of our already two established products in order to increase the promotion and advertising marketing for Allright. Marketing Group D also chose to change around our advertising agency again, using the cheapest of the three for Allround because this is the oldest of our three products and chose to use the middle agency for Allround+ in order to use the highest priced one for Allright. We understand the most expensive is not necessarily the better, but over the years we have felt it beneficial to use BMW for the first few years of promoting a product. This year we were able to promote our target segments, the empty nesters and young singles as well as promote message benefits for the products. These promotional tools we felt would be beneficial in focusing our product with the consumers whom most likely would purchase as well as informing the consumer of the benefits of all three of the products. Product benefits are essential within a competitive market.

Promotion spending we increased considerably – overall it was almost double what we were previously spending. We focused most of our promo this year on Allright with a 20% promotion allowance versus 17.6% and 18.1% for Allround and Allround+ respectively. Following various changes within the area of trade and consumer promotions, we were able to increase our overall promotion budget ratio to the total budget from 33.7% to 43.3%; we felt this was greatly needed and we attempted to so do in prior years in comparison to advertising.

In the end, we were a little disappointed this year as our net income dropped approximately $18 million, but our stock price still continued to climb. We believe most of this change was attributable to one, increasing our product pricing which ultimately increased our manufacturing sales considerably over the prior year or two, we had to spend more this year to introduce our new product, Allright. Overall, our stock price has grown from $38.35 to $89.80 – this is more than 100% of the original.

DECISION 7

For our seventh year Marketing Group D was provided a total budget of $86.9 million of which we spent a total of $86.8 million leaving an unexpended balance of $.1 million. In this decision, we decided that the new extension needed to be priced much higher than the previous decision. It helped us evaluate the pricing of all three products, settling with $5.65 Allround, $5.55 for Allround+, and $6.99 for Allright. Marketing Group D set a goal to cover more of the cost per unit and take into consideration the market update which reflected prices increased more than inflation.

Also, according to the market update, advertising did not increase much for this period so Marketing Group D lowered the advertising budgets slightly on all three products and changed the agency for Allright. Our target segmentation, as planned was young singles and empty nesters. Volume discount was adjusted here from 29% to 35% for Allround and 28% to 35% for Allround+. Allright’s volume discount for this decision was 28.5% all the way up to 35.5%. Promotional allowances were between 15% and 19% with the newest product, Allright having the highest amount for an extra push.

The market update prompted a change in the sales force that resulted in grocery stores and mass merchandisers being dropped which lowered the total sales force to 231 from the 237 used in the previous period. We saw an increase in stock price with this decision and cumulative income had a good jump as well.

DECISION 8

For our eighth year Marketing Group D was provided a total budget of $92.6 million of which we spent a total of $84.1 million leaving an unexpended balance of $8.5 million. This was our final year for Marketing Group D to analyze our growth for this project. This year we felt we primarily needed to focus on increasing our sales and stock price and at the same time holding our market share. We knew we must analyze our sales force, and advertising and promotion a little further to achieve this and possibly consider a reformulation of Allround.

This year we compared our sales force to our competitors to see if we were in line with our competition. We were surprised to find our staffing was very similar to others. We choose to shift some around primarily increasing our grocery stores due to increased sales of 5.5% per the market. Overall, we only increased our staff by 4 employees which was not much of an increase financially. In the area of pricing, we made some additional increases upon review of our unit cost. We knew our MSRP needed to be increased for Allround because the unit cost had risen $.26 this year and if we did not adjust our price accordingly, this could impact our net income. Allright product cost is double the cost to manufacture compared to Allround and Allround+ so we knew we needed to increase the price, but did not want to exceed $7 so chose $6.99. Marketing Group D chose to reduce our volume discounts only around 1% in each category. In the area of advertising and promotion we analyzed our comparisons and benefits primarily and found some did not appear to be focusing where they should have been. Some of our target messages were not applied to the correct product so we adjusted them accordingly. We believe these misallocations impacted our numbers last year and hoped to see a considerable change as a result of the correction.

CONCLUSION

In conclusion, the Allround Brands have had strong previous eight years years of growth and there is every indication it will continue. If Marketing Group D were to continue our decision analysis, we would increase the sales force to further assist convenience stores and retail stores. The adjustment in sales force should make them feel as though they have more support.

We would also adjust the benefits we are promoting and the promotional spending on Allround+. We would consider adjusting Allright to be priced a little lower. By administering these adjustments, Marketing Group D believes we would be able to drive sales and lower costs. These adjustments will lead us to see even more growth in cumulative income and a higher stock price.

Through these decisions we have learned the decisions have to be made depending on the overall market. Each competitor may have an effect on the brand, but so will the thoughts of the stores. By working with the sales force, the brand is able to move more units and make more money. In the end, Allround Brands would continue to grow as recognition of the new products grew and it would continue to be a popular brand into the future.

REFERENCES

Kotler, P., & Keller, K.L. (2012). Marketing Management (14th ed). Upper Saddle River, NJ:Pearson Prentice Hall.

Interpretive Simulations (2011). Active Learning through Business Simulations. Retrieved July 7, 2015 from https://www.interpretive.com/rd6/index.php.